Can You Get Cash Back From a Credit Card?
Distinguish between credit card rewards and the high-cost reality of cash advances. Understand the financial implications.
The term “cash back” for credit cards refers to two distinct financial concepts. It describes rewards programs where cardholders receive a percentage of their spending back, as a credit or direct payment. It also refers to obtaining physical currency from a credit card account, known as a cash advance. Understanding both is important for navigating credit card features and their financial implications.
Credit Card Cash Back Rewards
Cash back rewards programs return a portion of eligible purchases to the cardholder. These programs operate by accumulating a percentage of the amount spent, such as 1.5% or 2% on all purchases, or higher percentages in specific spending categories. Some cards offer a flat rate, while others feature tiered rewards for categories like groceries or gas. Another structure involves rotating bonus categories that change periodically, offering elevated cash back for specific purchases.
Rewards accumulate over time and are usually issued at the end of a statement period or billing cycle. Cardholders have several options for redeeming these rewards, including receiving a statement credit that reduces the outstanding balance. Other choices include a direct deposit to a linked bank account, a check mailed to the cardholder, or converting the cash back into gift cards or merchandise.
Credit Card Cash Advances
A cash advance involves borrowing a portion of your available credit limit as physical cash. This differs from a standard purchase, as you directly access funds from your credit line rather than making a transaction for goods or services. The amount available for a cash advance is a subset of your overall credit limit, and understanding this limit is important before a withdrawal.
There are several ways to obtain a cash advance. These include using your credit card at an ATM with your PIN, or requesting a cash advance over-the-counter at a bank branch. Some card issuers provide convenience checks, which can be filled out and cashed or deposited like a personal check, treated as a cash advance. Certain other transactions, such as peer-to-peer payments or purchasing lottery tickets, may also be classified as cash advances.
Understanding Cash Advance Costs
Cash advances come with specific financial implications, making them a costly way to access funds. A key cost is the cash advance fee, charged at the time of the transaction. This fee is often a percentage of the advanced amount, ranging from 3% to 5%, or a flat fee, such as $10, whichever is greater.
Beyond the initial fee, interest accrues immediately from the transaction date, with no grace period. This differs from standard credit card purchases, where interest is avoided if the balance is paid in full by the due date. The Annual Percentage Rate (APR) for cash advances is higher than for regular purchases, often ranging from 20% to 30% or more. The combination of an upfront fee and immediate, higher interest means even a small cash advance can become expensive quickly.
Impact on Your Credit Profile
Taking a cash advance can influence a cardholder’s credit profile by affecting their credit utilization ratio. This ratio measures the amount of revolving credit used against the total available credit. A cash advance immediately increases the outstanding balance, which raises this utilization ratio.
Lenders view a high credit utilization ratio as an indicator of increased financial risk. Consequently, a significant increase in this ratio due to a cash advance can lead to a temporary dip in your credit score. While a single cash advance may not directly damage a credit score, frequent or large cash advances could be perceived as a sign of financial distress or poor money management, impacting future creditworthiness.